Canadian universities have become addicted to the revenues brought in by international students. But how much should they subsidize our institutions?

This summer, rather unexpectedly, Canada ended up in a war of words with the Kingdom of Saudi Arabia. Among the casualties of this diplomatic war were six thousand or so Saudi students at Canadian universities and colleges who were peremptorily ordered to leave the country and find somewhere else to complete their studies. Their plight rightly attracted a great deal of attention and sympathy, but there was another casualty here as well: Canadian universities and colleges lost something on the order of $140 million in revenues as a result of the sudden disappearance of all these international students.

On its own, this is no major cause for alarm; Saudi students made up less than 3 percent of international students in Canada. Our universities and colleges can easily recover over the next couple of semesters simply by adding students from other parts of the world. But it should nevertheless set off some alarm bells: how dependent are Canadian universities on international students and their hefty tuition fees? Though universities do not report this figure directly, it is possible to extrapolate from Statistics Canada tuition fee and enrolment data, as I do in The State of Post-secondary Education in Canada 2018, from which the figures here are taken.

To understand universities’ addiction to international student fees, it’s worth looking back at the 1990s. This was a terrible decade for higher education: cutbacks were constant, tuition kept going up, student aid was slashed, and the system came out of it in pretty rough shape. But then came the 2000s, and the good times rolled. The economy improved, a demographic wave of new students washed into higher education, and governments started spending on education again (figure 1). As a result, universities saw their budgets grow at 6 percent per year after inflation for an entire decade. And their cost base — 70 percent of which goes to salaries, which are very hard to reduce because of tenure and collective agreements — rose in tandem.

But suddenly, after the global financial crisis, things changed, drastically. In 2009-10, combined transfers to institutions from federal and provincial governments peaked at $19,350 per full-time-equivalent student (in 2016 constant dollars). By 2015-16, thanks to a combination of increasing enrolments and a steady erosion of funding, that figure had declined by 19 percent to $15,687. Although funding levels recovered somewhat in 2016-17 (mostly due to federal infrastructure spending), the steady erosion of funding by 1 to 2 percent each year, combined with an inability to easily cut wage costs, ought to have caused a real problem at Canadian universities.

Except it didn’t. And the reason is international students. From 2009-10 to 2016-17, international students’ numbers almost doubled. Today they are about 13 percent of university students and 7 percent of college students in Canada. International students’ tuition fees have risen at twice the rate of hikes in domestic students’ tuition fees. The result: total income from international students increased from $1.25 billion in 2009-10 to $2.75 billion in 2015-16 (figure 2). Possibly not by coincidence, that $1.5-billion increase almost exactly offset the $1.7-billion fall in government funding over the same period.

While no one took a specific decision to cut government funding for post-secondary education and let the Asian middle class take up the slack, an accumulation of decisions by governments and institutions has brought us to more or less that point.

Fees for international students, which average about four times what domestic students pay, now equal 12 percent of operating revenue and 35 percent of all fees collected by institutions, and these proportions continue to climb. Already some major institutions, including the University of Toronto, are receiving more money from international students than they get in operating grants from their provincial governments. On current trends — and there is nothing to suggest these trends are likely to abate — revenue from international students will exceed $5 billion by 2021. While no one took a specific decision to cut government funding for post-secondary education and let the Asian middle class take up the slack, an accumulation of decisions by governments and institutions has brought us to more or less that point.

Now, there is nothing intrinsically wrong in getting universities to turn to the market in order to make up for a decline in funding; Australia and the United Kingdom, for instance, have gone much further down this road than we have. But this policy option has consequences. It makes universities more oriented to the business, engineering and science programs that international students want to take, and less oriented to the health, social sciences and humanities programs that they tend to avoid. As this summer’s Saudi incident shows, it also makes universities financially vulnerable to the vagaries of international politics and economics. The health of the rupee, for instance, is now a nontrivial factor influencing the financial health of universities. And if Xi Jinping’s quest for ideological control of China were to lead him to call a halt to the exodus of hundreds of thousands of Chinese students abroad every year…? Best not to think about it: in Canada, Chinese students alone are worth well over a billion dollars.

One important factor that has made possible this major run-up in international student numbers has been the recent decline in the number of Canadians turning 18. This has led to some overcapacity in Canadian universities. So programs in high demand, with only one or two exceptions, have been able to increase their international enrolments without needing to reduce their domestic intake to make room. But that demographic shift won’t last forever. Early next decade, the number of 18-year-olds in western Canada will start to rise again (in Ontario it won’t happen until the late 2020s), at which point institutions are going to be forced to make difficult choices between their lucrative international students and their domestic constituencies.

The rise of international student enrolments has almost seamlessly covered up the decline in government funding. Now that universities and colleges know they can balance budgets by tapping this particular revenue source, every complaint about a recession-induced spending cut or an ideologically based reduction in public expenditures will be met with the same government reaction: “Go get more foreign students.”

But should there be a limit to how much we ask foreigners to subsidize our own education system? If so, are we prepared to pay more as a result? It’s a debate we should have, rather than continuing to ignore the trends.

Shutterstock/By Maurizio De Mattei

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Alex Usher is currently President of Higher Education Strategy Associates (HESA), a consulting firm which advises governments, institutions and corporations in the higher education sector on policy and strategy. He was a founding Board Member of the International Rankings Expert Group and is a member of the Advisory Committee of the Shanghai Jiao Tong Academic Rankings of World Universities. Prior to working for HESA, he worked as Director of Research and Policy at the Canada Millennium Scholarship Foundation and before that as a senior policy analyst at the Association of Universities and Colleges of Canada. He is based in Toronto.

Alex Usher is currently President of Higher Education Strategy Associates (HESA), a consulting firm which advises governments, institutions and corporations in the higher education sector on policy and strategy. He was a founding Board Member of the International Rankings Expert Group and is a member of the Advisory Committee of the Shanghai Jiao Tong Academic Rankings of World Universities. Prior to working for HESA, he worked as Director of Research and Policy at the Canada Millennium Scholarship Foundation and before that as a senior policy analyst at the Association of Universities and Colleges of Canada. He is based in Toronto.